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J. Crew Earns $20.6M, Ups Outlook

J. Crew rolled through a robust spring season as ongoing efforts to elevate the quality, fit and luxury appeal of its collections paid off.

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NEW YORK — J. Crew rolled through a robust spring season as ongoing efforts to elevate the quality, fit and luxury appeal of its collections paid off.

On Wednesday, the company raised its earnings outlook for the year and reported a swing into the black for the second quarter ended Aug. 4 on a net basis, as well as a healthy operating margin of 12.5 percent.

The multichannel brand, which touts much of its product as designer quality without the prices, reported net income of $20.6 million, or 32 cents a diluted share, compared with a net loss of $2.8 million, or 8 cents, in the second quarter of fiscal 2006 as result of interest and finance charges.

Operating income rose 38 percent to $37.1 million compared to $26.8 million in last year’s quarter, while gross margin grew 160 basis points to 43.7 percent of revenues.

Total revenues increased 13 percent to $304.7 million, with store sales gaining 11 percent to $219.6 million; comparable-store sales were up 4 percent, and direct sales ahead 19 percent to $74.5 million. On a calendar-adjusted basis, comparable sales rose 6 percent.

J. Crew raised its outlook for the year to $1.42 to $1.46 per diluted share, from $1.37 to $1.41. Third-quarter profits are projected at 35 to 37 cents. J. Crew stock closed at $49.70, down $1.02, or 2 percent, from $50.72.

“When the goods are right, the customer responds,” said Millard “Mickey” Drexler, chairman and chief executive, during a conference call. “It looks and sounds simple, but it’s not actually so simple. We continue to push our design and quality to the next level.”

For the half, revenues increased 18 percent to $602 million, with comparable-store sales rising 8 percent. Gross margins increased 140 basis points; operating income increased 48 percent to $81.5 million, and net income available to common stockholders was $45.3 million, or 71 cents a diluted share.

Drexler also said the company remains on track to open seven stores before the end of the year, including its first Madewell unit in New York later this fall, and continues to grow its retail square footage at a 7 percent to 9 percent annual rate.

This story first appeared in the September 6, 2007 issue of WWD.  Subscribe Today.

The company projects continued midsingle-digit comps going forward, but Drexler acknowledged the economic environment is “a little bumpy,” and added, “We just buy conservatively, invest conservatively and plan conservatively.”

He emphasized offering “creative, better, higher-quality product….We continue to make every effort to differentiate our product so there is reason to buy at J. Crew and perhaps not some other place. The drive is to continue to evolve and sharpen the edge on our goods,” which he characterized as “interesting, wearable clothes, not intimidating, and higher quality. We are in the unique business. We are in the quirky business.”

For holiday, the company is putting a stronger focus on “quirky gift assortments at good prices.” J. Crew operates 189 stores, 55 outlets, the J. Crew catalogue and jcrew.com.

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